Can I Max My Roth IRA and My 401k?
Sandy wants to know if she can max her Roth IRA and her 401k contributions. Let’s dig into the rules.
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We answer:
- What should I do with my old retirement plan?
- Can I use a trust to protect Mom’s assets if she goes to a nursing home?
- Should I use my employer’s new Roth 401k option?
- How do I use my savings to create retirement income?
- Can I make the maximum contribution to both a Roth IRA and the Thrift savings plan?
Transcript: Can I Max My Roth IRA and My 401k?
This question is from Sandy. She asks, “Can you contribute the maximum amount to a Roth IRA and the Roth account in the government’s Thrift Savings Plan?”
The answer is yes—if you qualify to make a Roth IRA contribution.
Here are the contribution limits for 2020. For retirement plans whether it’s the Thrift Savings Plan, a 403b plan at the hospital or a school, or a 401k plan, you can contribute $19,500. If you’re over 50, there’s a catch-up contribution. That amount is $6,500. You can contribute $6,000 to a Roth IRA. If you’re 50 or older, you can contribute an additional $1,000.
If you wanted to maximize both, and you’re under age 50, that’s $25,500. If you’re 50 or older, that’s $33,000 total per person. If you’re married, you can do both, and your spouse can do both. If you have that much extra income, that’s phenomenal!
There are income limits for Roth IRA contributions. You can make the maximium Roth IRA contribution if your modified adjusted gross income (MAGI) is below these limits. For married couples filing a joint return, the limit is $196,000. If you’re single, that limit is $124,000. If you’re married and you file separate returns, the income limit is $10,000.
If your MAGI is over those limits, your eligibility to make those Roth IRA contributions changes. You may be able to do a partial contribution or none at all.
The Married Filing Separately Tax Trap
The married filing separately thing is an interesting little trap. A lot of people will file separate returns to try to save on state income taxes. But it has a hidden impact on things like your IRA contributions. It impacts deductions for traditional IRAs, Roth IRA contributions and Roth conversions.
If you’re married filing a separate return and your income is over $10,000, a lot of those things disappear. You want to be very careful with that. You don’t want to get a surprise later on.
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Check out our other posts.
Is Doing Nothing The Right Thing To Do?
Should I Use The Roth 401k?
How Do I Use My Savings To Create Income?
Can Stocks Predict The Election Outcome?
Can A Trust Protect Your Assets If You go to a Nursing Home?
What Should I do With My Old Retirement Plan?
About the Author
Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors. He specializes in helping hard working, middle class families plan for retirement.